N-ESRS: accounting profession preliminary remarks

Accountancy Europe has sent a letter to Commissioner Albuquerque regarding the European Sustainability Reporting Standard for Non-EU groups (N-ESRS), currently under development at EFRAG.

Article 40a of the Corporate Reporting Directive (CSRD) requires non-EU groups which make more than 450 million Euros in Union and that have a subsidiary or branch with a turnover of 200 million Euros, to publish a sustainability report on the group impacts. The N-ESRS is one of the options that can be used to comply with Article 40a of the Accounting Directive, as amended by the CSRD. The non-EU groups subject to this extraterritoriality provision can alternatively report under the full ESRS, or standards deemed equivalent to the ESRS.

In our letter, we share some initial remarks on the current draft N-ESRS, which is still work in progress at EFRAG.

CSRD interpretations

There are unclear elements in the CSRD, currently being transposed in Member States, that affect the development of the N-ESRS, such as:

• the definition of “net turnover in the Union”
• the objective of the standard, the determination of users and the type of decisions users make on the basis of the report prepared under the N-ESRS
• whether the standard should include purely impact disclosures or also those with a “financial” materiality aspect to them
• whether the N-ESRS report is a consolidated report
• considerations of cases where the subsidiary will report incomplete information based on only information in its disposal.

Perimeter of reporting (global vs. “mixed” approach)

Upon the advice of the EC, the current draft of the N-ESRS allows for two options for the perimeter of disclosures:

• global approach, whereby the impacts of the whole non-EU group would be reported, or
• “mixed” approach, whereby for climate, the global impacts would be reported, and for other topics impacts would be limited to those connected with the sale of products and services in the EU.

We express our concerns with the “mixed” approach, noting that it is impractical, raises assurance challenges, creates confusion, and undermines comparability.

Global context and political considerations

We invite the EC to explore equivalence and related mechanisms to ensure that:

• double reporting and the associated costs are fully eliminated
• EU companies remain competitive in the global markets
• non-EU companies subject to the extraterritoriality provision in the CSRD do not circumvent the provisions.

Accountancy Europe will contribute to the upcoming EFRAG consultation on the N-ESRS.